Business loans are often required for companies looking to finance new equipment, expand their reach, or develop a new product – but there are multiple forms of financing to choose from.
In this guide, our mortgage broker team explains the key differences between personal and business borrowing.
We aim to ensure you have complete oversight of the products on the market and understand what to expect from the business loan application process.
Should you require any support with finding competitive business lending terms or ensuring you pick the right business loan provider, please get in touch on 0330 304 3040 or email us at [email protected].
Business Loans Summarised
Commercial loans are standard products to use for a business finance project – they’re designed specifically for companies.
You can use a business loan for a vast range of purposes, from paying a VAT bill to covering the costs of relocating.
There are many different financing products, so a short-term loan is just one of multiple options. For example, invoice finance might be a suitable option if you have an ongoing need for cash flow support.
Repayment structures vary, but you can also take out a business loan with a repayment system aligned with your trading income.
One example is a merchant cash advance, whereby you borrow against future sales and repay the loan gradually, in line with achieving those sales.
Advantages of a Business Loan Over Personal Financing
Suppose you’re unsure whether to take out a private loan to service your business needs or apply through the company for a business loan. In that case, it’s essential to recognize the advantages of business-specific financing.
- Business loans can be arranged quickly: although typically this borrowing takes longer than a personal loan, the market has improved, and it’s often just as fast to organize.
- Alternative business finance offers many options, with borrowing products to suit your specific capital needs and repayment expectations.
- Taking out a loan through a company can help build a credit score, which is a valuable asset to have if you’re a relatively new business.
If you take out a business loan and repay the installments on time, you can increase your credit score and make it easier to secure competitive lending in the future.
Financing a business through a personal loan might be possible, but it’s likely to be tricky since a lender will always ask for the reason for your application.
Please get in touch with the Revolution team for more guidance around any of the business financing solutions we’ve mentioned here – or to discuss your borrowing needs and receive tailored recommendations.
Personal Loans vs Business Borrowing
Personal loans are primarily meant to finance personal use – so that could be to consolidate other debts, pay for a new car, take out a caravan loan, cover education costs, or help you catch up with your bills after a dip in income.
Lenders all have varied terms and conditions, but the majority won’t offer a personal loan if you want to borrow cash to finance a business.
It’s also crucial, to be honest in your application. Providing incorrect details to secure a personal loan could be considered fraudulent and have serious repercussions.
Another factor to think about is personal liability.
A personal loan is in your name, and so you are individually responsible for repaying the debt in full, plus any fees or interest liabilities.
If your company is a limited company or LLP, it’s therefore highly advisable you take out a business loan in the name of your enterprise to ensure you aren’t accepting personal liability and potentially putting your property at risk if the loan is secured.
Most lenders offset the risk of business lending by asking for a personal guarantee from the company directors.
Again – it’s important to seek independent advice from an experienced broker before committing to a guarantee since risks are involved.
Applying for UK Business Loans
Generally, business loans are available up to higher values since personal loans are usually capped at about £25,000, depending on the lender you choose.
Business loans can be of any value, provided you have the revenue and business plan to demonstrate that you can afford to keep up with the repayments.
When choosing any borrowing product, it’s essential to understand these pros and cons and evaluate all of the comparable costs associated with your loan.
Personal loans and business finance sound similar, but the terms, interest charges, borrowing limits, and eligibility requirements are very different, and it’s vital to judge which loan type is best suited to your needs.
Business loans are available in as little as a couple of days, so if you’re looking for a fast financing option, please get in touch with the Revolution team, and we’ll ensure your application is on the right track as quickly as possible.
